Restructuring from a Sole Trader to a Company
So, your business is growing and you’re thinking that now is the time to move from a sole trader to a company.
Firstly, you need to understand the difference between the two, as they have different tax, legal and compliance obligations, which are outlined in our blog ‘Business Structure Basics – Know the Terminology’.
Secondly, you need to consider the reasons why you wish to restructure. Whether it be financial, operational or management reasons, as these will impact your decision on whether a company is right for you. Changing your business structure may change things such as your tax, your personal liability, asset protection and ongoing costs.
Thirdly, you should speak with your accountant as to how to handle the restructure from a books and records and taxation point of view. Then speak with a solicitor as to the new company structure. It may be a simple company or their might be a trust involved. Speaking with a solicitor will provide clarity on the benefits and negatives of the options available to you.
After assessing all of the above, if you decide that a company structure is right for your business, then you need to follow these steps (as provided by the Federal Government Department of Industry, Innovation and Science at business.gov.au).
Apply for a company name or business name (if relevant)
This involves registering for an Australian Company Number (ACN), canceling your current ABN and reapplying under your company structure, and applying for any relevant registrations or licences.
Set up a company
In order to set up a company you must complete a form 201 with the Australian Securities & Investments Commission (ASIC). There is a costs associated with this. At the time of writing ASIC charge $479 for a ‘Pty Ltd’ company. Third party providers may charge a registration fee on top, however, this is usually no more than $50. In our view, it is worth the addition money as the registration is effectively immediate. Whereas ASIC requires you to post the form 201 to an office in Victoria for processing.
Manage the company
You now have different obligations to those of a sole trader including:
Keeping ASIC informed of company changes;
Paying ASIC fees on time to avoid deregistration;
Lodging business activity statements (BAS);
Managing debts to avoid insolvent trading;
Keeping financial records in accordance with the Corporations Act 2001; and
Act in the best interests of the company pursuant with your director’s duties in the Corporations Act 2001 and fiduciary duties.
It is no small task to move from a sole trader to a company and to continue to manage said company. Therefore, make sure you consider all of the above before making the change and contact a business advisor if you have any questions.
